I am currently representing a technology company looking to expand their current offices into a more desirable location in downtown Denver. Because they are a start-up that's in high growth mode, they have a close eye on their burn rate and a shorter term lease is actually in their favor allowing for flexibility as the company evolves. As a result we are taking a hard look at the available sublease office space in the downtown Denver market.

I thought this would be a good opportunity to share some of my tips and thoughts on how to best negotiate a sublease and to highlight several areas to be careful with.

Why Sublease?

• Can be an opportunity to secure below market lease rates.
• The space is often furnished and wired for data and telecom.
• New business or new to a market? A sublease can be a great way to test the waters.
• Expecting growth and don't want to commit to too much space?
  

Key Terms

• Mater Landlord - The Landlord on the original lease or "Master Lease".
• Sublandlord - The Tenant that is looking to sublease out their office or industrial space.
• Subtenant - The Tenant who is assumes the lease obligations of the Sublandlord.
• Master Lease - The original lease - all terms and conditions of the sublease will be passed along to the Subtenant.
• Sublease Agreement - Outlines the agreement between the Sublandlord and Subtenant.

Sublease Strategies

• Can be an opportunity to secure lower cost space initially and simultaniously strike a direct lease for a longer term after the sublease expiration.
• The Landlord may consider a lease buyout with the existing Tenant and will strike a new direct lease with you. This typically occurs if the new tenant is stronger financially and more "credit worthy".

Common Pitfalls to Watch Out For

• Review the Master Lease carefully, the Subtenant is assumes all liability of that Lease.
• What is the extent of your required Tenant Improvements? Carefully balance that with the remaining sublease term.
• Options to Extend typically are not granted to Subtenant
• Who maintains ownership of and is responsible for the removal of any office furniture
• What is the age and condition of mechanical equipment servicing the space that the Tenant may be responsible for?
• Who is responsible for restoration of space to the original condition at the end of the lease term. Review the Master Lease carefully.

Obviously this is a very general overview of several of the terms and strategies of a commercial sublease. Please contact Sherpa Commercial real Estate with specific questions or consult you own legal or real estate adviser.

Caveat - I am not an attorney and this is not to be construed as Legal Advise. Always seek legal advice for your individual situation and transaction.

The U.S. Industrial Market has recovered remarkably since the last recession especially in the coastal markets that are historically constrained for well-located Class A industrial product. As a result, industrial users have regained confidence in the U.S. economy and have begun to quickly expand their operations.

In many top-tier U.S. markets, absorption rates are on the rise, vacancy rates are compressing and capitalization rates are nearing pre-recession levels. A key driver of this absorption is the continued influence that e-commerce is having on the national and global Business-to-Consumer ("B2C") marketplace. Global online retail sales grew by 14.8% per year from 2007 to 2012 with an estimated total of $1.2 trillion in 2013. Retailers and third party logistics companies are desperatly seeking to capitilize on this trend by securing strategically located distribution facilities in high-density population centers in key markets.

In many cases retailers are adjusting their traditional brick-and-morter store strategies and focusing on online channels to improve delivery times, develop efficient return and exchange procedures and increase market penetration. Success in the retail industry rests on inventory management and quick delivery times, as a result demand for well equipped and strategically located facilities is skyrocketing.

A growing trend towards three key property types is emerging across the U.S. and internationally:
- Mega e-fulfillment centers;
- Parcel hubs and delivery centers;
- Urban Logistics Centers

Please contact Sherpa Commercial Real Estate if you would like to discuss these emerging CRE trends, if you are a retailer in need of distribution facilities or traditional retail space, or are an investor looking to capitalize on the anticipated strong demand for well-located distribution facilities.

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